U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from N/A to N/A
Commission file number 0-15078
NOVA NATURAL RESOURCES CORPORATION
(Exact name of small business issuer as specified in its charter)
Colorado 84-1227328
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
789 Sherman Street, Suite 550
Denver, Colorado 80248
(Address of principal executive offices)
(303) 863-1997
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 13,254,033
Transitional Small Business Disclosure Format (Check One):
Yes ; No X
NOVA NATURAL RESOURCES CORPORATION
BALANCE SHEET
MARCH 31, 2000
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 75,235
Accounts receivable:
Oil and gas 5,458
Prepaid expenses and other 3,551
_________
Total current assets 84,244
OIL AND GAS PROPERTIES, at cost
(using the full
cost method of accounting):
Unproved properties not being amortized 11,806
Properties being amortized 5,968,504
_________
5,980,310
Accumulated depreciation, depletion
and amortization (5,953,860)
___________
Net oil and gas properties 26,450
MINERAL PROPERTIES, at cost 189,677
OTHER ASSETS:
Furniture and technical equipment,
net of accumulated depreciation
of $47,121 3,272
_______
Total other assets 3,272
_______
TOTAL ASSETS $ 303,643
=======
See accompanying notes to these financial statements.
<PAGE>
NOVA NATURAL RESOURCES CORPORATION
BALANCE SHEET, CONTINUED
MARCH 31, 2000
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 0
Accrued expenses 17,338
_________
Total current liabilities 17,338
_________
STOCKHOLDERS' EQUITY
Convertible preferred stock, $1.00
par value; 3,000,000 shares
authorized; 1,792,267 shares
issued and outstanding,
liquidation preference $1,792,267 1,792,267
Common stock, $.10 par value;
17,000,000 shares authorized;
13,254,033 shares issued and
outstanding; 1,325,403
Additional paid-in capital 6,812,640
Accumulated deficit (9,644,005)
___________
Total Stockholders' equity 286,305
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 303,643
=======
See accompanying notes to these financial statements.
<PAGE>
<TABLE>
<CAPTION>
NOVA NATURAL RESOURCES CORPORATION
Condensed Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
________ ________ ________ ________ REVENUES:
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales 9,132 6,504 19,554 15,291
________ ________ ________ _______
Total Revenues 9,132 6,504 19,554 15,291
EXPENSES:
Oil and gas
production costs 5,153 4,085 8,062 7,590
Depletion, depreciation,
and amortization 1,021 1,970 2,043 5,123
General and administrative 205,683 19,080 245,508 39,103
_______ _______ _______ _______
Total costs and expenses 211,857 25,135 255,613 51,816
_______ _______ _______ _______
OPERATING LOSS (202,725) (18,631) (236,059) (36,525)
OTHER INCOME(EXPENSES):
Interest income 3,064 7,712 10,002 16,262
Interest expense (1,730) (551) (5,582) (8,448)
Contract income 13,229 3,272 28,885 3,272
Other Miscellaneous income -- -- -- 6,246
Loss on early Payment of
Note Receivable (40,629) 0 (40,629) 0
Gain on Forgiveness of Debt 0 14,652 30,985 14,652
Sale of Mineral Rights 0 0 71,658 0
Debt conversion expense 0 (71,615) 0 (71,615)
________ ________ ________ ________
Total other income (26,066) (46,530) 95,319 (39,631)
Net loss $(228,791) $ (65,161) $ (140,740) $ (76,156)
========= ========= ========= =========
NET LOSS PER SHARE
(Basic and Diluted) $ (.02) $ (.01) $ (.01) $ (.01)
======== ========= ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING 12,997,040 6,308,853 11,117,233 6,291,492
========= ========= ========= =========
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NOVA NATURAL RESOURCES CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
______ ______
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $(140,740) $ (76,156)
Adjustments to reconcile net income(loss) to net cash
used by operating activities:
Gain on sale of mineral rights (71,658) --
Gain on forgiveness of debt (30,985) (14,652)
Stock Bonus Expenses 115,650 --
Loss on early payment of note receivable 40,629
Write off of accounts receivable and interest (336)
Depletion, depreciation and amortization 2,043 5,123
Debt Conversion expense - 71,615
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 2,844 10,726
Prepaid expenses and other 604 3,985
Increase (decrease) in:
Accounts payable (31,003) 11,276
Accrued expenses 15,306 7,568
_________ ________
Net cash provided by (used in) operating activities (97,646) 19,485
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 84,308 14,645
Capital expenditures (8,145) (7,687)
Collection of principal on note receivable 240,696 38,425
_________ _________
Net cash provided by (used in) investing activities 316,859 45,383
_________ _________
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable (168,841) (63,652)
Proceeds from note payable 22,500 --
_________ ________
Net cash provided by (used in) financing activities (146,341) (63,652)
_________ ________
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 72,872 1,216
_________ ________
CASH AND EQUIVALENTS, at beginning of period 2,363 (1,131)
_________ ________
CASH AND EQUIVALENTS, at end of period $ 75,235 $ 85
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 5,582 $ 2,198
========= ========
<FN>
See accompanying notes to these financial statements.
</FN>
</TABLE>
NOVA NATURAL RESOURCES CORPORATION
Notes to Condensed Financial Statements
Six Months Ended March 31, 2000 and 1999
(1) The condensed financial statements included herein are unaudited. In the
opinion of management, all adjustments, consisting of normal recurring accruals,
have been made which are necessary for a fair presentation of the financial
position of the Company at March 31, 2000 and the results of operations for the
three and six month periods ended March 31, 2000 and 1999. Certain amounts have
been reclassified for comparability with the 1999 presentation. Quarterly
results are not necessarily indicative of expected annual results because of
fluctuations in the price received for oil and gas products, demand for natural
gas, and other factors. For a more complete understanding of the Company's
operations and financial position, reference is made to Management's Discussion
and Analysis of Financial Condition and Results of Operations herein and the
financial statements of the Company, and related notes thereto, filed with the
Company's annual report on Form 10-KSB for the year ended September 30, 1999,
previously filed with the Securities and Exchange Commission.
(2) Net loss per common share is determined by dividing net loss attributable
to common stock by the weighted average number of common shares outstanding
during each period. Potential common shares attributable to convertible
preferred stock were not included in the computation of diluted earnings per
share as their effect was anti-dilutive for 2000 and 1999.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Management's discussion of anticipated future operations contains
predictions and projections which may constitute forward looking
statements. The Private Securities Litigation Reform Act of 1995,
including provisions contained in Section 21E of the Securities Exchange
Act of 1934, provides a safe harbor for forward-looking statements. In
order to comply with the terms of the safe harbor, the Company notes that
a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operations, performance,
development and results of the Company's business include, but are not
limited to, the following:
(a) Present and anticipated sources of funds may be insufficient to meet
the Company's working capital needs.
(b) The Company may not be able to complete its contemplated transaction
with Torita Donghao LLC ("Torita Delaware"), as described in the Company's
report on Form 8-K, filed April 24, 2000 with the Securities and Exchange
Commission.
(f) If the contemplated transaction with Torita Delaware is not completed,
there is no assurance that the Company can complete a similar transaction
with another entity.
RESULTS OF OPERATIONS
The Company realized net losses for the three month period and six
month period ended March 31, 2000 of $228,791 and 140,740, respectively,
compared to net losses of $65,161 and $76,156 for the same periods in 1999.
Oil and gas sales for the three months ended March 31, 2000 increased
$2,628 to $9,132 compared to $6,504 for the three months ended March 31,
1999. For the six month period ended March 31, 2000, oil and gas sales
increased $4,263 to $19,554 compared to $15,291 for the six months ended
March 31, 1999. Oil and gas sales increased in the three and six month
periods compared to the comparable periods due to a dramatic increase in
the price of oil in both periods, and a substantial increase in the price
of gas in the six month period, which factors more than offset the
substantial decrease in production in both periods. The production decline
is due to sales of production and generally expected declines in production
as the wells in which the Company holds interests draw closer to the end of
their production lifetimes. As discussed elsewhere, the Company is in the
process of selling all of its remaining production, and accordingly, the
Company's future oil and gas production volumes and oil and gas sales will
be below these levels, and it is anticipated that, by the end of the
current fiscal quarter, such sales will cease. The sales volumes and
average sales prices during these periods were as follows:
Three Months Ended
March 31, March 31,
2000 1999
Sales
Oil (bbls) 348 588
Gas (MCF) 359 507
Average Sales Price
Oil $ 23.56 $ 6.79
Gas $ 2.00 $ 2.02
Six Months Ended
March 31, March 31,
2000 1999
Sales
Oil (bbls) 773 1,208
Gas (MCF) 915 2,604
Average Sales Price
Oil $ 21.96 $ 7.34
Gas $ 2.47 $ 1.91
Oil and Gas lease operating expenses including production taxes
increased $1,068 and $472 for the three months and six months ended March
31, 2000 as compared to 1999. The increase is attributable to increased
workover expenses and slightly higher taxes.
General and administrative expenses increased $186,603 to $205,683 for the
three month period and increased $206,405 to $245,508 for the six month
period ending March 31, 2000 compared to the same periods ending March 31,
1999, in which these expenses were $19,080 and $39,103, respectively. This
increase is the result of several factors. In January 2000, the Board of
Directors agreed to issue a total of 3,855,000 shares of stock to the
employees, directors, and two consultants, which individuals in turn agreed
to the cancellation of their stock options in their entirety. The Company
was required to take a charge against general and administrative expense in
connection with the issuance of these shares, based on the value of the
stock at the effective date of this transaction of 3 cents per share,
resulting in a charge of $115,650, all of which was non-cash. The Company
resumed the payment of salaries on a limited basis, after a two-year
hiatus, which resulted in $39,800 in salaries, bonuses and payroll taxes in
the three month period, $13,229 of which was offset by contract income. In
the six month period, salaries, bonuses and payroll taxes were $65,000,
$28,885 of which was offset by contract income. In addition, the Company
incurred legal expenses of $17,561, mostly in connection with a proposed,
but abandoned, transaction with Richlink International Holdings, Limited as
well as those steps necessary to wind down the Company's business and
prepare for a transaction wherein another entity will acquire control of
the Company. Accounting fees of $12,322 were paid in the six month period,
in connection with the audit of fiscal year 1999 financial statements, and
other miscellaneous expenses were higher in the 2000 periods due to the
increased cost of doing business in a vigorous economy.
Depletion, depreciation, and amortization decreased 48% to $1,021 and
60% to $2,043, respectively, in the three months and six months ended March
31, 2000, compared to $1,970 and $5,123 in the fiscal 1999 periods. This
decrease was primarily the result of the sale of producing assets, which
substantially reduced the full-cost pool.
As discussed in the Company's report on Form 10-QSB for the period
ended December 31, 1999, the Company negotiated the prepayment of a
promissory note received in 1997 in payment for the Company's Minnesota
kaolin mine. The agreed-upon price of $200,000 was discounted from the
face value of the note, and accordingly, a loss of $40,629 on the early
payment of this receivable was expensed in the three month period ended
March 31, 2000. The Company used a portion of these funds to completely
retire its outstanding promissory notes, on which it was paying 10%
interest, at a total cost of $126,769, including accrued interest.
Interest income decreased to $3,064 and $10,002 in the three months
and six months ended March 31, 2000, respectively, compared to $7,712 and
$16,262 in the 1999 periods. The decrease is due to the maintenance of
very low cash balances for most of the fiscal 2000 periods, prior to
receipt of funds from the prepayment of the kaolin mine receivable, and a
reduction in accrued interest on the note receivable from the sale of the
kaolin mine. Interest expense increased from $551 to $1,730 for the three
month period, and decreased to $5,582 from $8,448 for the six month period.
The increase in the three month period was due to the payment of accrued
interest on the redeemed promissory notes. The decrease in the six month
period was due to the reduction in interest expense resultant from the
conversion of $125,000 in long term debt of stock.
In the three months ended March 31, 1999, the Company experienced a
one-time gain on forgiveness of debt of $14,652. No such gain was recorded
in the 2000 three month period. In the six months ended March 31, 2000,
the Company settled debts which resulted in a gain on forgiveness of debt
of $30,985, compared to a gain on forgiveness of debt in the comparable six
month period of $14,652. These gains are non-recurring, since the Company
has paid or settled all of its debts except for current accruals arising in
the ordinary course of business.
Mineral rights which the Company had carried at no value on its books
were sold for a total of $71,658 in the six months ended March 31, 2000.
No such sale was made in the comparable period.
During the three months and six months ended March 31, 2000, the
Company realized income from outside contract work by one of its employees
in the amount of $13,229 and $28,885 respectively, compared to $3,272 in
the comparable periods in 1999. In the six months ended March 31, 1999,
$6,246 in proceeds was collected from the settlement of a lawsuit, another
non-recurring event.
In the three months and six months ended March 31, 1999, a debt
conversion expense of $71,615 was recorded. This resulted from the
restructuring of the Company's long-term debt, and resulted from the
difference in the fair value of the original conversion price and the new
conversion price. This was a non-recurring event.
CAPITAL RESOURCES-SOURCES OF CAPITAL
The Company's primary sources of cash flow during the six months ended
March 31, 2000 were proceeds from the prepayment of the note receivable
from the sale of the kaolin mine, proceeds from the sale of mineral rights,
and a gain on the forgiveness of debt. Cash used by operations totaled
$97,646 for the six months ended March 31, 2000 as compared to cash
provided by operations of $19,485 for the same period in 1999. Cash and
cash equivalents for the period increased $75,150, resulting in cash on
hand at March 31, 2000 of $75,235 compared to cash on hand at March 31,
1999 of $85. In the 2000 period, cash on hand was enhanced by the proceeds
from asset sales.
CAPITAL RESOURCES-UTILIZATION OF CAPITAL
For the six months ended March 31, 2000 the Company decreased accounts
payable by $31,003. Collection of principal on the note receivable was
$240,696 and proceeds from asset sales were $84,308, resulting in cash
provided by investing activities of $316,859. In the comparable period,
net cash provided by investing activities was $45,383. All funds for
capital expenditures for the remainder of the year are expected to be
provided from property or asset sales, and from existing cash balances.
LIQUIDITY
At March 31, 2000, the Company's working capital totaled $66,906 as
compared to working capital of $3,424 at September 30, 1999. Liquidity for
the six months ended March 31, 2000 was provided by the prepayment of
principal on a note receivable, the sale of mineral rights, and the
forgiveness of debt, however, liquidity was reduced by the redemption of
the Company's promissory notes, payment of the Company's bank debt and a
reduction in accounts payable.
Based on current cash flow projections, and in view of the Board of
Director's decision to sell the Company's assets and cease its minerals
operations, it is not anticipated that the Company will be required to
borrow funds in fiscal 2000.
PREPAYMENT OF RECEIVABLE FROM SALE OF KAOLIN MINE
The Company received a promissory note as part consideration for the
1997 sale of its kaolin mine. The remaining unpaid principal amount of
this note was $275,000. The note was to be fully paid with three payments
of $50,000 each in August and December of 2000, and in August of 2001. The
final payment in the amount of $125,000 was due in December 2001.
The Company suggested prepayment of the note at a discount, and after
negotiations, the parties agreed upon a prepayment amount of $200,000.
Management felt this to be an acceptable amount in consideration of the
time value of money, the risk inherent in the receipt of these payments
over the remaining installment term, and the fact that receipt of these
funds would allow the Company to eliminate its $125,000 in long-term debt
and the interest cost associated with this debt. Elimination of the debt
will position the Company to proceed with the Torita Donghao LLC
transaction and comply with the terms of the Letter of Intent pursuant to
that transaction, as described in the Company's filing on Form 8-K and
herein. Should the Company not proceed with the transaction, this step
will facilitate the Company's ability to enter into a similar transaction
(see 'Future Trends"). This payment was received February 4, 2000, and the
Promissory Note was cancelled.
REDEMPTION OF NOTES OUTSTANDING
The Company previously had debt outstanding in the form of Convertible
Subordinated Debentures in the Principal Amount of $250,000. During the
1999 fiscal year, the Company made an offer to all of the holders of its
Convertible Subordinated Debentures to restructure this debt, offering to
exchange restricted common shares of the Corporation for 50% of the
Principal Amount (i.e. $125,000), at a price per share of $.04, and to
replace the other 50% of the Principal Amount with notes secured by a
$125,000 installment payment relating to the sale of its kaolin mine to be
received in December, 2001. This offer was accepted by all of the holders
of the Debentures. During fiscal 1999, Nova issued to the Debentureholders
3,125,000 common shares, and notes for $125,000, and thereupon cancelled
its Convertible Subordinated Debentures. The notes were due on December
31, 2001, and accrued interest at 10% per annum, with payments to be made
on August 31 and December 31 of each year, to coincide with the receipt of
installment payments from the mine sale.
Having negotiated the prepayment of the promissory note whose proceeds
secured payments of these notes, on January 31, 2000, the Company exercised
its right to call the notes for redemption. All of the notes were redeemed
on or before March 1, 2000, for an aggregate payment of $126,769.
Nova's officers and Directors held $23,438 or 18.8% of the principal
amount of these notes, which they acquired on identical terms as those not
affiliated with the Company.
ISSUANCE OF STOCK FOR SERVICES
The Company has not paid or otherwise compensated its employees since
mid-1998, except for bonuses totalling $10,000 and salary for one employee
who performed work for a third party, for which the Company was paid, and
then in turn paid the employee.
Nevertheless, all of the employees continued to discharge their
duties. ESOP contributions cannot be made in the absence of such salaries.
The Board of Directors issued restricted common shares to Brian B.
Spillane, President, in the amount of 835,000 shares, for services and in
recognition of Mr. Spillane's personal guarantee of the Company's line of
credit and his providing collateral for such line of credit over the past
2 years, for which he received no compensation. Milton O. Childers, Vice
President of Exploration, Assistant Secretary and Director was issued
675,000 shares of restricted common stock; James R. Schaff, Secretary,
Treasurer and Manager of Lands, was issued 755,000 shares, and Mary Mernah,
Controller, was issued 355,000 shares. Robert E. McDonald, Director, for
services and in recognition of Mr. McDonald's personal guarantee of the
Company's line of credit along with Mr. Spillane over the past 2 years, for
which he received no compensation, was issued 365,000 shares. John R.
Parker, Chairman and Director, in return for services to the Company,
including assistance in obtaining drilling participants and participants in
a financing, for which he received no compensation, was issued 345,000
shares. Robert W. Meier, Director, in return for services to the Company
for which he received no compensation, was issued 315,000 shares. The
Board also granted 105,000 shares to two consultants to the Company who
have worked only for out-of-pocket expenses. All of these individuals
agreed to cancel the options which had been granted to them under the
Company's 1998 Nonqualified Stock Option Plan. A total of 3,855,000 shares
were issued, effective January 6, 2000, and a total of 3,673,577 shares
underlying stock options were canceled. The Company has no stock options
outstanding. Total Shares outstanding on a fully diluted basis, including
the effect of conversion of the Company's Convertible Preferred stock into
common stock, are 16,838,655.
FUTURE TRENDS
The Company reduced its overhead substantially over the past two
years, and further reductions would be difficult to achieve without
impairing the Company's ability to operate efficiently, manage its assets
and pursue its objectives. Management previously stated its objective to
pursue those avenues which offered the best value for its shareholders,
including mergers or acquisitions.
As discussed in the Company's report on Form 10-KSB for the fiscal
year ended September, 30, 1999, the Company had signed a Letter of Intent
with Richlink International Holdings, Limited which outlined the terms of
a transaction by which Richlink would have acquired control of the Company.
The Letter of Intent was subject to the negotiation, preparation and
execution of a definitive agreement and the completion of satisfactory due
diligence. The Company and Richlink were unable to agree on the terms of
the definitive agreement, and on March 23, 2000 Richlink advised the
Company that it was no longer interested in proceeding with the proposed
transaction, and the Company immediately filed a report on Form 8-K to this
effect.
The Board of Directors had previously determined that it was in the
best interests of the shareholders to cease operations and complete the
Richlink transaction, or should that transaction not be completed, to seek
to complete a similar transaction on the best possible terms. Accordingly,
Management immediately sought another suitor and on April 23, 2000, signed
a Letter of Intent with Torita Donghao LLC.
PROPOSED TRANSACTION WITH TORITA DONGHAO LLC
The Company has signed a Letter of Intent with Torita Donghao LLC
("Torita Delaware"), a Delaware Corporation by which Torita Delaware will
acquire control of the Company. Torita Delaware is a wholly-owned
subsidiary of Torita Group of the People's Republic of China ("PRC").
Torita Group has represented that it has many years of operating history in
China.
The Letter of Intent is non-binding, and completion of the transaction
depends on execution of a definitive acquisition agreement and the
completion of satisfactory due diligence. The Letter of Intent
contemplates the acquisition by the Company of 100% of the business and
operating assets of Torita Delaware in exchange for that number of shares
of common stock of the Company which will afford Torita ownership of 91.5%
of the Company's common stock after completion of the transaction.
The Letter of Intent provides that, after the transaction, the
existing Nova shareholders will own 7.23% of the common stock of the
Company, net of a commission paid in stock. The Letter of Intent
contemplates that, prior to or at closing, the entire operating business of
the Company, including all assets and liabilities, will be divested.
Torita Delaware will also make a cash payment to Nova of $75,000 from which
Nova will pay for the costs of the transaction and of termination of its
business. The Company has already completed the liquidation of most of its
assets and liabilities, and expects to complete the disposition of its
remaining operating assets within the next 30 days. Members of management
may bid on the purchase of such assets, but such bids will only be accepted
if they exceed those of other unrelated parties. No such transactions with
management have taken place.
The Letter of Intent provides that warrants with an 18-month term
representing 1.5% of the total issued and outstanding common stock of the
Company after the transaction will be issued to current Nova management as
part of the transaction.
Torita Delaware has made the following representations to the Company,
which has not obtained independent verification of such matters:
Torita Group has transferred the assets of its "Computer Tech" arm - Torita
Electronics Hong Kong ("Torita Electronics"), incorporated in Hong Kong,
into Torita Delaware. A major U.S. accounting firm will be engaged to
complete an audit of the company resulting from this transaction pursuant
to U.S. GAAP.
Torita Electronics is profitable. It occupies an area in the Electrical
Industrial City of Torita Group of 128,000 square feet. Torita Group
invested $6.4 million into a total of 6 manufacturing lines capable of
producing computer monitors, television sets, computer harddrives and other
Original Equipment Manufacturer ("OEM") products. Its production capacity
exceeds 1 million personal computer units, 200,000 television sets and 1
million sets of Digital Video Devices ("DVD") per annum.
Torita Electronics has a contract with the State Planning Authority for
Agriculture of the PRC to exclusively manufacture, supply and manage what
will be the largest Intranet service in China, ultimately reaching
1,100,000 farming communities, representing approximately 25% of the
population of the PRC. It is estimated this contract will be fully
completed over a seven-year period, in approximately equal increments each
year.
Torita Electronics will act as business manager and advisor to build the
network, and will supply the hardware. Torita Electronics also has a right
of first refusal to acquire an interest in the Intranet itself. This
project is intended to establish a mammoth information database for
agricultural commodities, technologies, and distribution. It will also
promote popularization of agricultural technical knowledge and general
education, and facilitate the exchange of agricultural goods and raw
materials through the Intranet. Torita Electronics has licensing
agreements with IPC Corporation LTD (a Singapore-listed Corporation) and
Infomatec AG of Germany, both of which will provide technical support.
Infomatec will also provide access to the JAVA Network Technology developed
by Infomatec. Torita Electronics has begun to manufacture the equipment
and is commencing implementation of the network in the initial sites
selected. Torita Electronics goal is to have approximately 150,000 sites
fully operational within 12 months. There can be no guarantee that this
goal will be attained.
The Letter of Intent provides that the definitive agreement require
Torita Delaware to seek listing for the Company's shares on the NASDAQ
stock market following the closing of the transaction.
For a period of 60 days from execution of the Letter of Intent, the
Company and Torita Delaware are precluded from soliciting or entering into
any discussions with any other party with respect to the sale of the
Company or the merger of Torita Delaware with, or the purchase of any other
U.S. company by Torita Delaware, respectively.
In order to complete the transaction contemplated by the Letter of
Intent, the Company will be required to amend its Articles of Incorporation
to increase its authorized capital, change its name and complete a post-
acquisition reverse stock split. The Company will seek shareholder
approval of these actions. Shareholders will be asked to approve all of
the steps needed to effect this transaction at a shareholders' meeting
contemplated to be held as soon as practicable following execution of the
definitive agreement and completion of appropriate due diligence.
Although Nova has every intent to successfully complete this
transaction, there can be no assurance that this transaction will be
completed, or if completed, that the terms will be as presently
contemplated.
The Letter of Intent contemplates that the entire operating business
of the Company, including all assets and liabilities, will be divested
prior to or at the closing of the transaction. As disclosed in the
Company's report on Form 10-KSB for fiscal 1999, report on Form 10-QSB for
the three months ended December 31, 1999, sale of the Company's assets and
discharge of its liabilities has been proceeding. The Company has recently
completed the sale of its 50% working interest in an undeveloped gas
prospect in Wyoming and a small working interest in the same general area.
Proceeds of $38,000 from this sale have been received. The Company has a
verbal agreement with the operator of its sole remaining working interest
in oil production to sell that interest for $10,000. It is expected this
sale will be finalized in the next several weeks. An offer to purchase the
Company's overriding royalty interest in the Whitney Canyon field is
currently being evaluated. Sale of these two interests will dispose of the
Company's remaining oil and gas production, and revenues derived therefrom
will cease.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. Exhibit 27, Financial Data Schedule (Submitted only in
electronic format.
(b) Reports on Form 8-K dated December 29, 1999, March 23, 2000 and
April 24, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf of
the undersigned thereunto duly authorized.
NOVA NATURAL RESOURCES CORPORATION
Date: May 12, 2000 By: /s/ Brian B. Spillane
Brian B. Spillane,
President, Director, and
Chief Executive Officer
Date: May 12, 2000 By: /s/ James R. Schaff
James R. Schaff,
Secretary-Treasurer
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